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I'm Too Risk-Averse for Index Investing

paranoidvalueinvestor.substack.com

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Re: I'm Too Risk-Averse for Index Investing

#101

Post by paulpauper »

If you assume that a bad bear market is a 40% drawdown, and since 2009 the S&P 500 has gained 20% on a good year, you only need just 2 good years or a mixture of some good and mediocre years to offset a bear market. So this means staying out of the market even for just 2-4 years may mean never having the chance to buy back at a lower price even in a bear market. Indeed, the market crashed in early 2020 due to Covid but only got as low as where it was in early 2017.

Also, huge firms are generating more cash than ever . This is $ that must go to shareholders such as in the form of buybacks , dividends , or retained earnings , even in the absence of growth. A $1 billion company that generates $100 million in annual profit means that every year shareholders become 10% richer even if the company does not grow earnings or size at all.

Less fertility not such a big deal if people have more disposable income and high standards of living to offset it.

Predictions of overvaluation , crisis, are commonplace and yet the market keeps marching higher. Pays to be optimistic as far as investing is concerned.

Re: I'm Too Risk-Averse for Index Investing

#104

Post by neogodless »

nonsapreiche wrote: post #71

why not simple sell a market when goes up and buy it othewise?

Do you mean a timing mindset, where you hold cash until a market index drops a preset amount, and then immediately dump all cash into it, and if it rises a preset amount, you immediately sell all of it?

What would those presets be? Could you model this and see how that performs traditionally?

Re: I'm Too Risk-Averse for Index Investing

#105

Post by jacquesm »

evandijk70 wrote: post #96
gargarplex wrote: post #20

Earlier quoted context omitted.

Makes a huge difference when considering the tax implications.

That depends on which country you live in. In my country (The Netherlands) you pay a fixed percentage of the value of your portfolio. Dividends are not taxed.

> Dividends are not taxed.

I wish.

But no, dividends are taxed:

https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/...

What you probably miss is that dividend tax for non substantial holdings (less than 5% of the total stock) is withheld before being paid out.

Re: I'm Too Risk-Averse for Index Investing

#106

Post by queuebert »

blockwriter wrote: post #23

Reading the Intelligent Investor, it is striking to see how many stocks there were with a P/E ratio under 15 and with sound financials and that paid good dividends, I.e. a value stock, in the 1950s, when the book was written. If you try to apply the value investing principles today, you will end up spending an inordinate amount of time looking for a stock like this. The risk of an index fund is less than the amount o…

Interest rates were much higher back then, so equities were not as competitive an investment, given their risk level.

Re: I'm Too Risk-Averse for Index Investing

#107

Post by vishnugupta »

assbuttbuttass wrote: post #15

There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.

Incidentally, I'm currently reading/researching on financialization and came across this short, well accessible paper[1] on the topic. It shows how 401(k) and such retirement funds played a big role in fuelling the financialization activities.

The paper title is "Fueling Financialization: The Economic Consequences of Funded Pensions"

[1] https://journals.sagepub.com/doi/pdf/10.1177/109579602110622...

Re: I'm Too Risk-Averse for Index Investing

#108

Post by queuebert »

JKCalhoun wrote: post #67
blockwriter wrote: post #23

Reading the Intelligent Investor, it is striking to see how many stocks there were with a P/E ratio under 15 and with sound financials and that paid good dividends, I.e. a value stock, in the 1950s, when the book was written. If you try to apply the value investing principles today, you will end up spending an inordinate amount of time looking for a stock like this. The risk of an index fund is less than the amount o…

I agree, but you can Google "dividend aristocrat" stocks to find a list of stocks that are paying dividends above their weight. Just don't expect better than a 5% ROI.

Dividends are taxed punitively, though.

Re: I'm Too Risk-Averse for Index Investing

#110

Post by arberx »

paulpauper wrote: post #101

If you assume that a bad bear market is a 40% drawdown, and since 2009 the S&P 500 has gained 20% on a good year, you only need just 2 good years or a mixture of some good and mediocre years to offset a bear market. So this means staying out of the market even for just 2-4 years may mean never having the chance to buy back at a lower price even in a bear market. Indeed, the market crashed in early 2020 due to Covid b…

History has no value in predicting future returns. You just randomly picked a period to make your point. Many such instances disprove it where the breakeven return is more on the magnitudes of decades.

We're approaching a seismic shift in monetary policy, from expansion to compression in a high inflation world—something many investors haven't yet experienced.

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